* Dollar weakens after G7 meeting, boosting interest in gold
* Jewellery demand picks up in India ahead of Diwali
* SPDR Gold Trust reports inflow of bullion
(Updates prices)
By Jan Harvey
LONDON, Oct 5 (Reuters) - Gold prices extended gains above
$1,000 an ounce in Europe on Monday, supported by weakness in
the dollar in the wake of a meeting of Group of Seven finance
ministers at the weekend.
The softer dollar is boosting interest in gold as an
alternative asset, analysts said, as well as making the precious
metal cheaper for holders of other currencies.
Spot gold <XAU=> was bid at $1,004.45 an ounce at 1142 GMT,
up from $1,001.30 late in New York on Friday. U.S. gold futures
for December delivery <GCZ9> on the COMEX division of the New
York Mercantile Exchange edged up $1.30 to $1,005.60 an ounce.
As well as the weak dollar, gold is also being supported by
fears over the sustainability of the recent stock market rally.
U.S. equities closed down and European stocks hit a four-week
closing low on Friday after weak U.S. non-farm payrolls data.
"Gold is in a period of going sideways, consolidating before
the next significant move," said Mitsubishi precious metals
strategist Tom Kendall.
"It is (being influenced by) the dollar, but there is also a
degree of nervousness among equity investors," he said. "There
are some pieces of news that are keeping people wary."
The dollar fell on Monday after a meeting of Group of Seven
finance ministers in Istanbul brought no surprises, which the
market took as a signal policymakers are comfortable with a
gradual dollar decline as part of global economic rebalancing.
[]
The dollar index <.DXY>, which measures the U.S. unit's
performance against a basket of six other currencies, edged down
0.13 percent to 76.893.
Meanwhile European shares edged higher after hitting a
four-week closing low on Friday in the wake of
higher-than-forecast U.S. jobless numbers, but gains were choppy
as investors were cautious over the market outlook. []
Elsewhere oil prices, which are often tracked by gold,
slipped as investors worried about the pace of U.S. economic
recovery. []
FESTIVAL DEMAND TRICKLES IN
Gold prices took some support from an uptick in physical
demand for the metal, with jewellery sales in India, the world's
largest gold consumer last year, recovering ahead of the
festival of Diwali later this month. []
The strong rupee is helping offset a sharp rise in dollar
gold prices, dealers said.
Meanwhile holdings of the world's largest bullion-backed
exchange-traded fund, New York's SPDR Gold Trust <GLD>, edged up
1.221 tonnes or 0.1 percent on Friday. []
Analysts say they are still concerned about the volume of
speculative net long positions in U.S. gold futures, though
these positions declined a touch in the week to Sept. 29 from
the record levels they reached the week before.
"While speculative net long positions fell during the week
of Sept. 29... they continue to stay at a relatively high
level," said Commerzbank in a note. "The risk of position
squaring remains, which could weigh on the gold price."
Among other precious metals, silver also rose, helped by
gains in gold. Spot silver <XAG=> was at $16.22 an ounce against
$16.12. Elsewhere platinum <XPT=> was at $1,277 an ounce against
$1,278, while palladium <XPD=> was at $296 against $294.
"September saw the best prices of 2009 for both platinum and
palladium," said Standard Bank in a monthly note on Monday.
"This was driven by strong investor interest, motivated by
dollar weakness, in turn driving a very buoyant gold market," it
added. "Underlying fundamentals remain lacklustre, although risk
of South African mine production cuts remain."
(Editing by Keiron Henderson)
